Insourcing Incurs an Annual Fixed Cost of $500,000 and a Variable

question 53

Multiple Choice

Insourcing incurs an annual fixed cost of $500,000 and a variable cost of $60 per unit. Outsourcing incurs an annual fixed cost of $750,000 and a variable cost of $20 per unit. What is the indifference point between the two alternatives?

• A) 0 units
• B) ? 6250 units
• C) 6250 units
• D) 40 units
• E) 12,500 units

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Definitions:

Rate Of Return

The upward or downward movement in an investment's value across a defined duration, detailed as a percentage of its initial expenditure.

Insurance Agent

A professional who sells, solicits, or negotiates insurance policies on behalf of an insurer.

Annuity

A financial service that ensures a regular payout to an individual, mainly intended as financial support for retirees.

EAR

Effective Annual Rate, the interest rate adjusted for compounding over a specified period, providing a true annual rate.